CPI inflation surges, factory output shrinks

India’s retail inflation accelerated to 7.34% in September, remaining well above the central bank’s targeted range for the sixth consecutive month, as food prices rose.

Food inflation quickened to 10.68% in September from 9.05% in the preceding month, driven by higher prices of vegetables, fish, meat, pulses, eggs and spices.

Data released by the National Statistical Office on Monday showed retail inflation had risen to 6.69% in August.

Retail prices continue to soar above the central bank’s 2-6% target band because of disruptions in supplies of food, especially vegetables, amid the pandemic and higher fuel prices. On Friday, the Reserve Bank of India (RBI) kept policy rates unchanged as inflation continued to remain high. Governor Shaktikanta Das said inflation will ease gradually towards the target in the third and fourth quarter of the fiscal.

“Amid the unpalatable headline and food inflation figures, the relatively stable core inflation in the past three months offers some relief, keeping the hopes of a February 2021 rate cut alive,” said Aditi Nayar, principal economist at Icra.

Meanwhile, factory output contracted by 8% in August, at a slower pace than in July, indicating economic activity is gradually gaining pace after the government eased the lockdown restrictions.

Factory output is measured by the Index of Industrial Production, which is considered the closest approximation for measuring economic activity. Cumulative growth in April-August was (-) 25%. “With the gradual relaxation of restrictions, there has been a relative improvement in economic activities by varying degrees as well as in data reporting,” an official statement said.

Manufacturing sector output, which accounts for more than three-fourth of the entire index, saw a decline of 8.6% in August. Mining activity that accounts for over 14%, fell 9.8%. Power output contracted 1.8%.

“Though economic activity is yet to reach pre-covid levels, it is gaining traction with each passing month albeit at a reduced pace. Factory output contraction for August declined to 8% y-o-y against 10.8% in July and 15.8% in June,” said Sunil Kumar Sinha, principal economist at India Ratings and Research.